New rules for hypercompetition: The new 7-s’S

In hypercompetition success depends on developing a series of new advan, tages that disrupt (not sustain) the status quo and that cope with other firms trying to disrupt the status quo. But what is it that allows companies to rapidly and continuously identify and develop new advantages? What is it that allows them to successfolly compete in hypercompetitive environ, ments? Part III explores how firms navigate through this hypercompetitive environment by using a new set of principles, designated as the New 7 ,S’s. These strategic principles are quite different from those of the traditional 7,S’s.

1. The Failure of Fit: McKinsey’s Old 7-S Framework

McKinsey’s 7,S framework33 says that competitive advantage arises from creating a proper “fit” among key organizational characteristics and focus, ing these characteristics on one purpose or mission. This requires a fit be, tween the organization’s strategy and environment as well as the proper fit among seven key internal factors. These factors are structure, strategy, sys, terns, style, skills, staff, and superordinate goals. These 7,S’s can be seen as a way to implement and create the four traditional competitive advantages (cost,quality, timing-know,how, strongholds, and deep pockets).

Fit implies a sense of permanence. It is concerned with maintaining a steady state rather than guiding the constant evolution of new advantages. It is also very predictable, making the company an easy target for compet, itors. If the organization is so tightly galvanized around a single objective, it can tend to make a firm less flexible and unable to change strategy or the rest of the 7,S’s to meet new needs. In hypercompetition today’s fit be, comes obsolete and easy to outmaneuver.

Competitors can also turn the 7,S formula against the firm. When they try to outmaneuver the company, they can easily read its capabilities and weaknesses, given the current configuration of the 7 ,S’s. Firms need to prepare for hypercompetition in an entirely different way.

Our examination of successful hypercompetitive firms revealed that many utilized some or all of a new set of approaches—the New 7-S’s. These are

  • superior Stakeholder Satisfaction
  • Strategic Soothsaying
  • positioning for Speed
  • positioning for Surprise
  • Shifting the rules of competition
  • Signaling strategic intent
  • Simultaneous and Sequential strategic thrusts

The New 7-S’s are concerned with the ability of the company to create disruption, seize the initiative, and create a series of temporary advantages like those shown in Figure 1-2. The first two of these S’s—stakeholder focus and strategic soothsaying—are concerned with establishing a vision for how to disrupt the market. This includes setting goals, setting the firm’s disruption strategy, and identifying some core competencies necessary for the firm to create specific disruptions. The second two—speed and sur­prise—are focused on key capabilities that can be applied across a wide array of actions intended to disrupt the status quo. The final three—shift­ing the rules, signaling, and simultaneous and sequential strategic thrusts—are concerned with disruptive tactics and actions in hyper­competitive environments.

Traditional strategic planning has focused only on planning moves in specific markets rather than developing new markets and new approaches. The traditional goal has been to sustain advantage rather than disrupt the market and develop a series of temporary advantages. This has led to a very different approach to strategy.


The first two S’s provide the vision and core competencies for disruption. They define the source of new advantages and ways to achieve them. Su­perior stakeholder satisfaction is the key to winning each dynamic strategic interaction with competitors. The process of developing new advantages or undermining those of competitors begins with an understanding of how to satisfy customers. By discovering ways to satisfy customers, the company can identify its next moves to seize the initiative. But customers are not the only stakeholders that must be satisfied. By empowering employees, the company can gain the internal motivation and vision needed to carry out those moves. It was American Airlines’ understanding of the business traveler and its motivated work force that allowed it to create the business class and to implement its series of advantages. It was Microsoft’s under­standing of customers and its motivated work force that allowed it to de­velop Windows and other successful software systems.

Strategic soothsaying is a process of seeking out new knowledge necessary for predicting or even creating new temporary windows of opportunity that competitors will eventually enter but that are not now served by any­one else. These opportunities can be found by creatively combining prod­ucts, understanding trends in the business environment that will open up new opportunities, and serving new customer markets with the existing capabilities of the firm. Microsoft’s development of NT software resulted from a combination of reading current market needs and creating new op­portunities, and it is already working on the next generation of operating system, Cairo, due in 1995.

These two S’s differ from conventional thinking about advantage in that they argue that the source of advantage is the ability to win each dynamic strategic interaction with competitors. This is achieved by find­ing how to satisfy the customer in a way that is new or superior to old methods. This requires two competencies: ( 1) motivated, empowered workers at all levels of the organization, and ( 2) knowledge of the future or an ability to create the future. Together these allow the hypercompetitive firm to disrupt the market by creating new opportunities and by making old methods of serving the customer obsolete.


To quickly take advantage of the vision identified by the first two S’s, the company needs to develop the capability for disruption through the next two S’s—speed and surprise. These capabilities can be used across a series of dynamic strategic interactions. By pre-positioning the company’s or­ganizational capabilities for speed and surprise, the firm creates the ability to react quickly to opportunities in the environment or to proactively out- maneuver competitors at every stage of the dynamic strategic interactions between companies.

Because advantages are eroded quickly, capabilities for speed and sur­prise are vital to seizing the initiative. Speed and surprise are needed to take advantage of opportunities, to move quickly against competitors, or to respond to a competitor’s attack. Speed is also a key part of competitive advantage, because it enhances the ability to serve customers and to choose the moment in time that the firm will enter the market (e.g., as a first mover or a fast follower). Surprise is also crucial to success. The longer the first mover can delay entrance by competitors into the market by stun­ning them with a surprise attack, the more time there is- to create a strong position and make gains before the competition responds and forces move­ment onto the next market, product, or new method of competing.

Competitors are becoming increasingly savvy. They are running nu­merous SWOT analyses (i.e., studies of the Strengths, Weaknesses, Op­portunities, and Threats facing the other players in their industry) as a routine way to predict competitors’ behaviors. Like radar, this awareness has made creating surprise much more difficult. The company must de­velop its own radar-jamming or stealth mechanisms to avoid this radar, and they must have the ability to send up decoys to throw the opponent off the track.

American’s computer reservation system has given it the ability to rap­idly rework its fare structures and perks for customers, surprising its com­petitors. Microsoft’s combination of operating systems and applications programs has led to complaints that it has an inside track on new operat­ing systems that aid its development of applications. Although the com­pany claims it shares information about new systems with competitors, it has still managed to move quickly into new markets, gaining 60 percent of the market for applications for software that works with Windows.

These two S’s suggest that advantage during each dynamic strategic in­teraction rests in organizational capabilities that allow’ firms to outmaneu- ver competitors by surprising or being faster than competitors are. Since firms can only create a temporary advantage with each new move to satisfy customers (according to vision created by the first two S’s), firms must strike quickly and without warning as a way to keep these temporary ad­vantages open for as long as possible.


The final three S’s are concerned with tactics or punch/counterpunches used in a hypercompetitive environment. Shifting the rules of competition is concerned with actions that redefine the battlefield. By shifting the rules of the game, the company creates new opportunities to satisfy customers. The company finds new ways of satisfying customers that transform the industry, such as adapting the personal computer to serve the mainframe computing industry or inventing the disposable razor to transform the market for standard razors. These shifts are not always the result of techno­logical innovations. For example, Dell’s shift to mail-order sales of PCs shifted the rules in that industry. American Airlines’ restructuring and simplification of its fare structures reshaped pricing in the airline industry. Microsoft’s creation of Windows also shifted the rules and created new markets for applications programs that the company was ready to fill, and it changed the nature of competition between IBM-compatible personal computers and Apple systems.

Signals—verbal announcements of strategic intent—are important pre­ludes to more powerful _ actions. Signals can stall the actions of competitors or create uncertainty that erodes their will to defend against attacks. They can preannounce or fake aggressive offensive moves that alter the behav­ior of competitors. Thus, signals can be used to disrupt the status quo and interactions between companies and thereby create an advantage. Soft­ware companies sometimes announce new systems that are years away from completion. The companies claim that these preannouncements of “vapor ware” are designed to aid applications developers. But competitors complain that preannouncements lead customers to wait for the new pro­gram rather than buy competitors’ products that have made it to market more quickly.

Simultaneous and sequential strategic thrusts are the use of a series of ac­tions designed to stun or confuse competitors, disrupting the status quo to create new advantages or erode those of competitors. Whereas traditional strategic actions have been treated one at a time, actions in hypercompeti­tion are used in combinations that are difficult to unravel and difficult to defend against. These thrusts move on several geographic or market fronts simultaneously. By manipulating competitors’ reactions using a series of simultaneous or sequential actions, they result in the initiating company’s advantage. Simultaneous and sequential strategic thrusts are used by hypercompetitive firms to harass, paralyze, induce error, or block compet­itors.

American Airlines has used a sequential set of thrusts designed to lock in business travelers and force competitors to constantly play catch-up ball just to stay even with American. It has also used a simultaneous approach. While pinning U.S. competitors down in a battle for domestic market share, American has quietly been expanding into Europe by buying up computer reservation systems and looking for potential acquisition targets.

These three S’s suggest that winning a dynamic strategic interaction has to do with how the traditional interaction between competitors is at­tuned to using (1) signals, (2) new competitive methods that shift the rules, and (3) simultaneous and sequential actions that manipulate or mold the actions of competitors.

2. Sustaining the Unsustainable: A New Form of Competitive Advantage

In sum, the only sustainable competitive advantage is based in the knowl, edge that these New 7 ,S’s provide about how to manage dynamic strategic interactions with competitors. For too long, firms have defined advantage as finding ways to sustain and extend the profit plateaus in Figure 1-1 by using one or more of the traditional competitive advantages. However, as this becomes increasingly more difficult due to hypercompetition, it be, comes important to shift focus toward knowledge and skills relevant to

  1. launching multiple unsustainable initiatives (as shown in Figure 1,2) and
  2. using them to outmaneuver the old competitive position of rivals by taking advantage of the dynamic and relativistic properties of strate-gic positioning (illustrated in Figure 1-3).

Thus, in hypercompetition, the new emphasis is on using dynamic stra, tegic interactions to neutralize the opponent’s previous advantage by mak, ing it obsolete, irrelevant, or nonunique. As hypercompetition speeds up, the plateaus in Figure 1-2 will get shorter in duration and lower in height. Instead of maximizing profits as the sole goal of corporations, hyper, competition will necessitate new goals, including ( 1) maximizing the opponents’ losses while minimizing one’s own losses or (2) living with low profits while aiming at maximizing market share and domestic employ, ment to build the wealth of the nation through having high employment with significant disposable income.

Taken to its logical conclusion, hypercompetition will escalate until there is some stabilizing force in world markets, such as transnational reg, ulations. This prospect, even if it may be considered desirable, seems un, likely at this point. In the meantime truly hypercompetitive firms will eventually compete by getting better and better at the New 7 ,S’s until only those firms who are good at these New 7 ,S’s survive and there is no longer any competitive advantage provided by their use. At that point the New 7 ,S’s will become necessities for survival, and firms will have to seek a new source of advantage or live with even shorter plateaus than those shown in Figure 1-2, making it even more ridiculous to set profits as the goal of the firm.

Source: D’aveni Richard A. (1994), Hypercompetition, Free Press.

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